The US audit watchdog has slammed Grant Thornton for deficiencies in five of the firm's audits, which it inspected.

In a report issued yesterday, the Public Company Accounting Oversight Board said it identified weaknesses which included failures by the firm to identify or appropriately address errors in the issuer's application of GAAP.

In addition, the deficiencies included failures by the firm to perform, or to perform sufficiently, certain necessary audit procedures.

'In some cases, the deficiencies identified were of such significance that it
appeared to the inspection team that the firm, at the time it issued its audit report, had not obtained sufficient competent evidential matter to support its opinion on the issuer's financial statements,' the report said.

Among the audits that it reviewed, the PCAOB found that:

• the firm failed to adequately test the revenue and cost of revenue cycles;

• the firm failed to test certain factors that the issuer had used in determining

the fair value of the stock options that the issuer had issued and failed to

perform procedures to assess whether the issuer had recognized

compensation expense over the proper service period;

• the firm failed to adequately test the valuation assertion regarding inventory;

• the firm failed to test the data provided to actuaries who prepared reports

that the issuer used in accounting for benefit plans that represented

approximately 90% of the issuer's total benefit obligation;

• the firm failed to evaluate the assumptions that management had used to

determine the "general reserve" portion of the allowance for doubtful

accounts;

• the firm failed to test the cash flow projections and disposition values that

management had used to determine various asset impairment charges;

• the firm failed to test interest receivable and interest payable balances

related to borrowed and loaned securities beyond comparing the amounts to

reports that were not tested for completeness;

• the firm failed to adequately test interest revenue as it did not perform sufficient procedures to test interest revenue because the analytical procedures that it used as its primary test did not meet the requirements for substantive analytical procedures. Specifically, the Firm failed to assess the completeness and accuracy of the underlying data used in the analytical procedures, and failed to develop expectations that were precise enough to provide the desired level of assurance that differences that may be potential material misstatements, individually or in the aggregate, would be identified.

In a written response to the PCAOB, Grant Thornton said that it had agreed, in certain cases, to perform additional procedures or improve aspects of its audit documentation.

'We have already developed additional guidance, updated our policies where applicable, implemented expanded monitoring in some key areas and enhanced our training programs to address topics covered by the PCAOB's comments,' the firm said.